Residency And Source Issues In Australian Taxation Law

Fred’s daily behaviour before and after entering Australia

The Australian resident is referred as the person who is the resident of Australia for the taxation purpose under “section 995-1 of the ITAA 1936”. The court in “Reid v The Commissioners of Inland Revenue (1926)” considered the meaning of the word “reside” (Kenny 2014). The commissioner expressed that the presence and time are to be taken into account while determining whether the person reside in the place where they spend a portion of their life.

Majority of the individuals work in numerous nations during their careers. They regularly maintain a house in their domicile nation. Nevertheless, for the phase of assignment in Australia, these individuals live and work in Australia (Jover-Ledesma 2014). Their family often accompany them and they become involved in the social activity in Australia.

As understood Fred a British Executive came Australia to set up a branch for his company. Even though his time of stay was not certain he leased his Melbourne residence for 12 months. He even rented out the family home and derived interest from France, however due to ill health Fred returned to UK after 11 months from arriving in Australia.

Referring to “section 995-1 of the ITAA 1936” Fred, is an Australian resident because all the factors reflect Fred is resident in Australia. While ascertaining tax liability in Australia Jim must refer to the necessary provision of double taxation convention where he will discover that his interest from France would not be held assessable in Australia due to the duel resident tie-breaker tests in the convention operating to entirely treat Fred resident in UK within the meaning of the convention.

According to the “taxation ruling of TR 98/17” the period of physical presence in Australia demonstrate that the behaviour of the individual possess the necessary continuity, routine or habit as the question of fact, depending upon the situation of each case (James 2016). On entering Australia, a person may reflect that they do not intend to live in Australia. However, when there is a change in the behaviour reflecting an intention to live in Australia, a person may be treated as the Australian resident from time when such behaviour begins that is consistent with living here in Australia begins. The intention should be ascertained objectively, with regard to all the necessary facts and situations.

As understood in the current situation of Jenny who is a working accountant in Hong Kong enters Australia to spend only three months for travelling and staying three cities. On being offered to take up the position in Australia for nine months Jenny accepted the offer and leased a service executive apartment in Sydney.

Calculation of Mick’s taxable income

As Jenny is on the working trip, the time and nature of her stay in Australia in temporary accommodation during April 2017. Jenny’s stay during the income year does not establishes a pattern of continuous behaviour and she should be treated as non-resident for the year ended 30 June 2018.

Later, from the early July the behaviour of Jenny alters. The leasing of a permanent accommodation along with Jenny’s position in Sydney establishes a more settled purpose for being in Australia in comparison to her initial three months in Australia. Jenny should be treated as resident from the time when there is a change in her behaviour and is an Australian resident for the income year of 2018.  

A: Salary received by the employee would be treated as ordinary income under “section 6-5 of the ITAA 1997” because the salary received constitute an income an income from the personal exertion under “section 6-1 of the ITAA 1936”.

B: Compensation received by the injured worker for the loss of salary because he was not able to work for four weeks would be included in the assessable income of the taxpayer under “section 15-2 of the ITAA 1997” as the ordinary income (Grange, Jover-Ledesma and Maydew 2015). This is because the compensation received is in respect of the employment to the worker.

C: Christmas gift received by the daughter from her mother cannot be treated as ordinary income. The court in “Scott v FCT (1966)” held that personal gifts are not treated as income.

D: Proceeds from the sale of copyright to a book will be treated as assessable ordinary income under “section 6-5 of the ITAA 1997” because the payment is received by the recipient for the transfer of all the rights associated to the copyright in the books.

E: Proceeds from selling the copyright of book where the recipient is carrying on the business of writing books and selling the copyright would be included for assessment as ordinary income under “section 8-1 of the ITAA 1997” (Douglas et al. 2014). The proceeds of such sale constitute assessable income in the hands of the recipient in agreement with the “subsection 25 (1)”.

F: Profit on sale of shares which were held for number of years would be included into the assessable income of the taxpayer under the ordinary meaning of “section 8-1 of the ITAA 1997”.

G: Unemployment benefits that is received by the unemployed person from the government would not be included into the assessable income within ordinary meaning of “section 6-5”.

Annice’s expenses for work related calls and furniture

H: Award receive by the freelance photographer for his photography would be treated as ordinary income under “section 8-1 of the ITAA 1997” because the amount of $4,000 is related to the taxpayer income generating activities.

I: Payment received from the sales of pottery as the part of hobby would not be considered as ordinary income since the amount derived is from the hobby and hence non-assessable.

J: The sum of $200 received for the best painting by the local art exhibition would be held as ordinary income because the amount received holds sufficient relation with the income producing activities of the taxpayer.     

A: The receipt of gross salary by Frida will be treated as the assessable income within the ordinary meaning of “section 8-1 of the ITAA 1997”.

B: The unused annual leave for the year 2017/18 constitutes a non-assessable income under “section 15-2 of the ITAA 1997” (Barkoczy 2018). The annual leave received by Fried would not be included for taxation purpose.

C: The winnings from the Powerball syndicate by Fried would not be held as assessable income because it is a mere windfall gain and does not has the character of income.

D: Receipt of cash prize by Frieda for employee would be included for assessment. Referring to “Kelly v FCT” receipt of award that is incidental to work and employment is an assessable income (Kenny, Blissenden and Villios 2018). The cash receipt of cash prize by Frieda is incidental to her work and employment.  

E: Receipt of holiday to Fraser Island would not be included in the assessable income. The holiday received constitute a non-cash benefit having nexus with the personal services which is non-convertible to cash and hence not an ordinary income.

F: Frieda received a wedding gift from her work colleague that valued $750. Citing “Scott v FCT (1966)” personal gifts are not treated as income and not included for assessment purpose. The wedding gift received by Frieda is a non-assessable income.

G: Frieda received a reimbursement of the self-education costs that is incurred for the logistics course. The amount received by her employer would be treated as assessable income for assessment purpose.

H: The rental income received from the rental apartment by Samantha Storey would be treated as assessable income within the ordinary meaning of the “section 6-5 of the ITAA 1997” (Sadiq et al. 2018). The rental income constitutes periodic receipts for Samantha.

I: Samantha reported the receipt of $700 as the reimbursement by tenants for cleaning carpets. The amount received by Samantha would be held taxable and would be included in the assessable income.

Factors determining Australian residency

J: Insurance pay-outs that is received for the items that is used by the taxpayer to generate income should be included for assessment purpose. The receipt of insurance pay-out by Samantha would be treated as assessable income for assessment purpose.     

Computation of Mick Taxable Income for 2016/17

Computation of Mick net tax payable or refundable for 2016/17:

A: The payment of electricity bills by Ernie for his business premises would be liable for general deduction under “section 8-1 of the ITAA 1997”.

B: The payment of home electricity bill is non-deductible under the negative limbs of “section 8-1 (2) of the ITAA 1997” because it is an outgoing of domestic nature.

C: Jamie under the simplified depreciation rule can instantly write-off the cost of computer since the cost of computer is less than the threshold limit of $20,000.

D: Fiona reports the payment of $750 for home bill however she estimated that 60% of the calls were made for business purpose. Therefore, Fiona can claim 60% of her home phone bill as deduction under “section 8-1 of the ITAA 1997”.

E: Stan reports payment of $200 for cleaning his home though Stan argues he is not able to run his business properly if he cleans his house but the expenses were not incurred in gaining assessable income. Therefore, under “section 8-1 of the ITAA 1997” Stan would not be allowed to claim deduction.

F: Rita pays a sum of $12,000 as child care fees to enable her to carry her full time job. Referring “Lodge v FCT (1972)” the child care fees will not be allowed for deduction since it is not incurred in the derivation of assessable income (Morgan, Mortimer and Pinto 2017).

G: Tara incurs a traveling expenses by train to travel from her home to work. Referring to “Lunney v FCT (1958)” travel between home and the place of work by Tara is not allowed for deductions.

H: Nicole reports a payment of $6,000 to her payments. The expenses will not be considered as allowable deduction under “section 8-1 of the ITAA 1997” since it is a private or personal expense.

I: Citing the case of “FCT v Finn”, Stu employed as the legal assistant would be allowed to claim deduction for self-education expenses under “section 8-1” because the expenses incurred were to maintain or increase his occupation skills (McCouat 2018).

J: Ron will not be allowed to claim deduction for the self-education expense under “section 8-1” because the expenses incurred not related to his occupation or skills.

Jenny’s case as a non-resident and later as a resident

A: Referring to “Swinford v FCT” Stefan will be allowed to claim deduction for rent under “section 8-1” as the home office expenses up to 20% of floor area that has the character of “place of business” because the expenses were incurred in derivation of assessable income (Taylor et al. 2018).

B: Jo will be denied deduction under “section 8-1 of the ITAA 1997”. Referring to “Handley v FCT” Jo being a barrister also maintained his own chamber or office in town and hence no deduction will be allowed.

C: Annice will be denied for the expenses that were incurred from her home related to her employment. Annice took the work to home for convenience purpose and not because of compulsion. Referring to “FCT v Forsyth” the expenses incurred by Annice were not relevant or incidental in derivation of assessable income.

D: Don will be denied deduction under “section 8-1” for mortgage and rates because worked from home for convenience purpose. Citing “FCT v Forsyth” the expenses were not relevant or incidental in derivation of assessable income (Woellner et al. 2014).

E: Russell will be denied deduction under “section 8-1” for purchasing and establishing a shelf company. Referring to “FCT v Softwood Pulp & Paper” the expenses incurred by Russell were preliminary to the commencement of income earning activities and hence non-deductible (McCouat 2018).

F: Cherene will be denied deduction under “section 8-1” for purchasing and establishing a shelf company of retail clothing. Referring to “Goodman Fielder Wattie v FCT” the expenses incurred by Cherene were preliminary to the commencement of income earning activities and hence non-deductible.

G: Mack will be allowed to claim deduction for the legal expenses incurred for the cessation of the business under “section 8-1 of the ITAA 1997”. Citing “AGC Ltd v FCT (1975)” the expenses incurred for business that were formerly carried on by Mack and hence it is tax deductible.

H: Wilf will be denied deduction for the cost of preliminary expenses under “section 8-1 of the ITAA 1997”. Referring to “FCT v Softwood Pulp & Paper” the expenses incurred by Wilf were preliminary to the commencement of income earning activities and hence non-deductible (Morgan, Mortimer and Pinto 2017).

I: Janelle will be allowed to claim deduction under “section 8-1 of the ITAA 1997” for the travel purpose because the expenses were incurred in derivation of assessable income.

J: Shaun will not be allowed to claim deduction for the sum of $1000 that was spend on accommodation because the amount was entirely paid by his employer. As he did not maintained any record, no deduction will be allowed to Shaun under “section 8-1 of the ITAA 1997”.

Deduction for car expenses:

References:

Barkoczy, S. 2018. Australian Tax Casebook 2018 14e ebook. Melbourne: OUPANZ.

Douglas, H., Bartlett, F., Luker, T. and Hunter, R. 2014. Australian feminist judgments.

Grange, J., Jover-Ledesma, G. and Maydew, G. 2015. Principles of business taxation.

James, S. 2016. The economics of taxation.

Jover-Ledesma, G. 2014. Principles of business taxation 2015: Cch Incorporated.

Kenny, P. 2014. Australian tax.

Kenny, P., Blissenden, M. and Villios, S. 2018. Australian Tax 2018.

McCouat, P. 2018. Australian master GST guide.

Morgan, A., Mortimer, C. and Pinto, D. 2017. A practical introduction to Australian taxation law.

Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., Teoh, J. and Ting, A. 2018. Principles of taxation law.

Taylor, C., Walpole, M., Burton, M., Ciro, T. and Murray, I. 2018. Understanding taxation law.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2014. Australian taxation law select.

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